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Citigroup Replaces Pandit as New CEO Corbat Considers Shakeup

Pandit, who helped lead the bank back after 2008 crisis, is out.

Citigroup Inc. Chief Executive Officer Vikram Pandit, who led the bank through a U.S. bailout while reaping $261 million for himself, was replaced by Michael Corbat, who said he may make shake up the firm’s operations.

President and Chief Operating Officer John P. Havens, 56, also resigned, the New York-based bank said today in a statement. Corbat, who led Citigroup in Europe, the Middle East and Africa, takes the helm immediately as Pandit, 55, leaves both his executive role and his seat on the board.

The departures, announced six months after Michael O’Neill became chairman, remove a team that led Citigroup out of 2008’s global credit crisis. While Pandit posted a surprise quarterly profit yesterday, he suffered setbacks this year when regulators blocked his plan to boost dividends, shareholders rejected his pay package and Morgan Stanley came out ahead in a multibillion- dollar dispute over a jointly owned brokerage venture.

Corbat told the staff in a memo he’s “a true believer in this company” after spending his entire career at Citigroup. “I’m going to take the next several weeks to immerse myself in the businesses and review reporting structures,” he wrote. “These assessments will result in some changes.”

Shares of New York-based Citigroup, the third-largest U.S. bank, rose 0.2 percent to $36.74 as of 10:45 a.m. in New York. While the stock had gained 39 percent this year through yesterday, it remains down about 90 percent since Pandit was publicly named as CEO in December 2007 when losses tied to the brewing financial crisis drove out his predecessor, Charles O. “Chuck” Prince.

Sudden Change

“Given the progress we have made in the last few years, I have concluded that now is the right time for someone else to take the helm,” Pandit said in the statement. “Mike is the right person to tackle the difficult challenges ahead.”

Investors were caught off guard by the change, according to analysts at Bank of America Corp., who wrote in a note to clients that O’Neill’s rise to chairman may have triggered Pandit’s departure. The CEO was focused on strategic vision while O’Neill was more concerned with operations, the note said.

O’Neill, 65, a former CEO of Bank of Hawaii Corp., was among directors who joined in 2009 to bolster the panel’s banking experience after its bailout. He chaired a committee that oversaw Citi Holdings, which would have brought him into close contact with Corbat, who was CEO of the unit at the time.

Bair’s Assessment

Pandit’s departure will help the company, said Sheila Bair, who clashed with him when she was chairman of the Federal Deposit Insurance Corp.

“This was a very positive move,” Bair said today in an interview with Tom Keene on Bloomberg Radio. “I did have concerns about Mr. Pandit’s qualifications to serve as the CEO of the largest commercial bank, because he had never been a commercial banker.”

Corbat, 52, has worked at Citigroup and predecessor companies since graduating from Harvard University in 1983, according to today’s statement. He was previously CEO of Citigroup’s Europe, Middle East and Africa operations, overseeing consumer banking, corporate and investment banking and trading in that region. Before that, he was CEO of Citi Holdings, where he oversaw more than 40 divestitures.

“The international business is where they live and die, so hopefully this fellow, because of his background, is going to be able to focus on that and retain that and then develop a model for the future,” said Chris Whalen, a senior managing director at Tangent Capital Partners LLC, on Bloomberg Television. The management change “is very disorderly and I think they need to explain to us why this timing made sense from the board’s perspective.”

Pandit’s Pay

If no alterations are made to Pandit’s compensation, Citigroup will have paid him about $261 million in the five years since he became CEO, including his personal compensation and about $165 million for buying his Old Lane Partners LP hedge fund in 2007 in a deal that led to his becoming CEO. The bank shut Old Lane soon after Pandit took the post, causing a $202 million writedown.

Pandit spent 22 years at New York-based Morgan Stanley before quitting in 2005 amid a power struggle under then-CEO Philip Purcell. Havens, who ran equities at Morgan Stanley, quit around the same time and in 2006 helped Pandit start Old Lane.

Citigroup bought the hedge fund in 2007 for $800 million and incorporated it into Citi Alternative Investments, the bank’s private-equity, real estate and hedge-fund investment division. Pandit was placed in charge of the unit, which had lacked a full-time CEO for about a year.

The bank shut the fund shortly into Pandit’s reign as CEO, amid a spate of hedge-fund failures, purchasing its assets and allowing investors to take their money out.

“It will be very interesting to see how Corbat changes the management structure,” said Thomas Brown, CEO of hedge fund firm Second Curve Capital LLC, on Bloomberg Television. “They could become a much more competitive company.”

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